Paul Lewis

More Lewis on the web

250407 - The UK - a tax haven for the super-rich?

180407 - Inflation rises

110407 - The Chancellor's record

280307 - Council tax: rises and rebates

210307 - Budget and the pensions campaign

140307 - ISAs

070307 - Inflation

280207 - Share prices

210207 - Bank charges

140207 - Personal information

080207 - Online accounts

310107 - Mortgage exit fees

290107 - Pension funds

240107 - Payment protection insurance

170107 - National Insurance

_{Talk money matters and much more online in our lively Saga Zone forums}

The end for final salary pension schemes

The Michelin man faces a slimmer retirement after this week's news that the French tyre company is ending its final salary pension scheme. The closure will affect 4200 workers in the UK at three tyre factories and the ATS garage chain. The scheme closed to new members three years ago, writes Paul Lewis

Now it says all existing members will be transferred to a ‘money-purchase’ scheme from January 1 2009. These schemes make no promises about the pension that will be paid.

Michelin is just the latest in a string of companies' closing schemes that promise a pension related to earnings. Two weeks ago the new owner of the emergency services radio firm Airwave O2 announced the end of its scheme just an hour after it bought the company for £2 billion.

Debenhams, the AA, and WH Smith are three high profile businesses which have closed their schemes. The recent takeover of Boots by private equity firm KKR has led to fears that its pension scheme will also be shut down affecting 70,000 workers.

Michelin blames longer life (of employees not tyres) and – despite putting in an extra £100 million recently – a continuing deficit in the scheme of £250 million.

Companies normally close down these schemes to save money. It costs a great deal to guarantee a pension related to your salary at retirement and pay it for life. The average amount paid into a final salary scheme by companies is 16.4% of earnings with another 4.6% by the member – a total of 21%.

But once the scheme switches to a ‘money purchase’ scheme – where the contributions are just saved up in an investment account and which gives no guarantee of the final pension – average company contributions fall to 6% of pay and 3% from the member, a total of 9%. Less than half the money going in means less than half as much coming out at retirement.

There’s no magic in final salary schemes – they just take a lot of money. If companies put the same amount into their replacement we could all look forward to a better retirement.

This article was created: 2 May 2007.
This article was last edited: 2 May 2007.

Email Back to top

Site map | About Us | Privacy policy | Contact Us

Paul Lewis

More Lewis on the web

More from Saga

The end for final salary pension schemes